Catching Up to NDC: A Primer & an Update

Will the day come when the International Air Transport Association's New Distribution Capability standard be so engrained that no one will even need to talk about it anymore? That's an increasingly common prediction voiced at industry events.

Clearly, that day is not today. Even though NDC has been around since 2012, it remains a source of confusion for travel buyers, and introductory-level discussions still draw crowds at conferences. This also, however, has been a year of rapid progress in terms of major players on all sides of the distribution chain getting on board. As such, the window—in which learning about NDC is a luxury, not a necessity—is closing quickly.

For those dealing with global programs, it has been closing even more quickly. "From a corporation's perspective, in Europe, they've had to deal with it much more quickly than in the Americas," TravelCast principal and co-founder Kim Castro said during the Global Business Travel Association convention this summer. "For the Americas, some corporations are more prepared, interested and active than others."

An IATA-formed advisory group of travel managers, led by S&P Global director of travel and meetings Ann Dery and Leo Pharma manager of travel and meetings Jens Litorp, wrote an open letter in September that referenced their experience at the IATA Air Business Travel Summit this summer. "We were witness for the first time to tangible examples of how NDC will affect the products and services we buy, and it is great to see that we have been listened to and that our needs as corporate travel buyers are recognized by those who have progressed in their capability to date." However, they also noted "there are still challenges to be overcome."

NDC 101

NDC is a data transmission standard based on extensible markup language, or XML, that's designed to improve communication between airlines, buyers and everyone in between on the distribution chain.

Beverly McCabe, CEO of corporate booking technology supplier Innfinity Software Systems, described it as "the euro of the airlines," which from a booking tool's standpoint means that "whether we are interfacing with the airline directly or a GDS or an NDC exchange through ATPCO, it will have the same messaging format."

For buyers, the how is less interesting than the why. Ultimately, NDC can serve as a building block for airlines to change the way they sell their products. Airlines can create Amazon-like retail experiences—offering not only fares but also ancillary products like upgrades, bag fees, Wi-Fi, food and beverage and other offers—personalized to a traveler's needs. They already do this via their websites, but using the NDC content transmission standard instead of the old global distribution system Electronic Data Interchange for Administration, Commerce and Transport, or EDIFACT, standard, they can achieve similarly robust retailing power through third-party channels with relatively quick setup.

So, where does that leave GDSs? If TMCs, booking tools or even the buyers themselves can access this content directly from the airlines, what role is there for a third-party distributor, particularly as some airlines—Lufthansa, Air France-KLM and British Airways parent company International Airlines Group—have introduced surcharges on bookings made via the GDS?

GDSs will continue to play the central role in distribution, particularly because some airlines will only partially adopt NDC, leaving at least some portion of their booking volume in the GDS. Some will adopt NDC not at all, leaving the central distributor in its traditional role. In fact, despite some early reticence, all the major global GDSs have adopted the standard themselves and—according to Farelogix CEO Jim Davidson, who was an early direct connect innovator and an NDC advocate—are now moving in lockstep with airlines as they pursue a retailing future. Additionally, NDC has given rise to a number of new distribution systems specializing in NDC connections.

Who's Playing: The NDC Roster

What do the Levels Mean?

The International Air Transport Association's NDC certification comes at three levels, based on capabilities of the suppliers' application programming interfaces.

Level 1: The APIs can handle simple add-ons of ancillary products after an airfare is booked. For example, a traveler using this would be able to buy extra legroom or pay for a checked bag separate after buying the ticket.

Level 2: The APIs can handle offer management, such as an airfare bundled to include ancillary products like extra legroom, checked bags and Wi-Fi.

Level 3: The APIs are capable of connecting to an airline system so pricing and availability is seen in real time and allow for traveler personalization. APIs also enable airlines to ticket and fulfill bookings not through a global distribution system.

IATA currently offers three levels of certification for NDC, and several of the major players in corporate air travel already have reached the top.

Airlines. IATA lists 53 airlines as certified at the top level as of early October. This includes all three U.S. legacy carriers, as well as the Big Three European carriers. About a dozen more airlines are listed at lower certification levels.

Delta, along with its partner Virgin Atlantic, was among the most recent to achieve Level 3. These carriers look to use NDC as the basis for a "next-generation storefront," according to Delta VP of sales operations and development Kristen Shovlin.

GDSs. All three of the major GDSs—Amadeus, Sabre and Travelport—are among the dozen aggregators certified at the top level by IATA, as are metasearch providers like Skyscanner and Kayak.

Travelport was the first GDS to achieve Level 3, followed this summer by Amadeus. In the meantime, Amadeus has been pushing for adoption via its NDC-X program, which is testing and refining uses of the standard with its airlines and travel-selling customers. As of early August, three mega travel management companies and American Airlines had signed as NDC-X partners. Sabre achieved Level 3 in September, has been building up its Beyond NDC collaboration to test NDC-based capabilities and has enlisted American Express Global Business Travel, BCD Travel, Carlson Wagonlit and Flight Centre Travel Group, as well as American Airlines, United and other participants.

TMCs. IATA lists 16 suppliers as certified at the top NDC level for travel sellers. Hogg Robinson Group, recently acquired by Amex GBT, is the only major TMC name on that list.

A smaller player, WTMC, has been at the forefront of building NDC airline connections: with British Airways, Lufthansa and Star Alliance carriers including United, Singapore and SAS. It also is building a "personal travel assistant," Bots&Beings, to aid in searches, and NDC connections will be a key element, according to WTMC CEO Sarosh Waghmar. "What NDC will champion is personalization," he said. "Even the biggest [travel] websites in the world today, after you fill out a profile, [they] push out [options] based on the cheapest fare and then you scroll down and find the one you want and book it. With personalization at the time of search, it can recognize me, and as long as it's in policy, a traveler is going to select what he or she wants."

Technical Challenges

With the number of players growing, IATA's next step is to push actual transaction volume through NDC. The association has 21 airlines on its Leaderboard, including the Big Three European carriers and both American and United, that have committed to having at least 20 percent of their bookings outside their own websites coming from an NDC application programming interface, said IATA NDC director Yanik Hoyles.

As of now, though, no NDC connections are running on a large-scale basis, so it remains to be seen how quickly and how well they will operate once they are hit by demand comparable to what a GDS processes today, Travelport president and CEO Gordon Wilson said at the BTN Group's recent The Beat Live conference.

The Travelport platform, for example, processes about 6 billion itineraries daily, and the average speed of a search in the Travelport system is two seconds; a good portion come back in less than a second, Wilson said. For airlines working with NDC APIs today, searches are trending around five seconds or more, he said.

As such, booking systems will have to figure out whether it's better to wait to display results until all are available or to stream them as they come. "How does that work from the consumer perspective?" Wilson said. "After we get some information back from the fastest airline, then, oh, somebody else popped up in here. These kinds of considerations are the things that we are working through, in cooperation with our airline partners."

In addition, Wilson noted there are differences in how airlines are interpreting the NDC standards. Some airlines, for example, are guaranteeing inventory and pricing for a certain period of time following a search via NDC, while others are guaranteeing it only at the time of the search.

"This means that ‘standard' is, actually, a very loose term," Wilson said. "It also means that cost to serve and manage content in a normalized environment is high, due to complexity and lack of consistency."

The Challenge of Choice

In addition to normalization challenges, NDC has the potential to explode the amount of choice making its way to the corporate traveler. "I've tried to do the math," said Davidson, "and each added ancillary creates 200 or 300 potential options in the actual offer."

Even if booking tools could reasonably display all those options, it would be impossible for travelers to sift through the choices before booking, said SAP Concur supplier and TMC services EVP Mike Koetting. "It's ultimately a great opportunity for travelers to purchase a product that's the best fit for their needs, but it has a price of complexity for the entire industry," he said. "Trying to rationalize all those independent interpretations of NDC packaging and pricing into a coherent, efficient purchasing tool is challenging for technology developers, as well as for the traveler." He added that more content options for travelers will require travel managers to provide policy guidance.

Davidson suggested that policy coupled with traveler profile and machine learning-enhanced filters ultimately would deliver what corporates want at the point of sale—and not what they don't. "Corporate travel is an execution against a prenegotiated agreement, and NDC will allow that to happen more smoothly, more dynamically and more successfully than the way we're doing it today."

That only works, however, if all the technology is in place to accommodate the content. Davidson and Koetting share that concern, as does former IBM global agency and online lead Shari Quackenbush Meisner, who is eager to see the standard deliver change. "My biggest concern, though, is that the industry will try to roll out NDC before the workflows and the technologies to support it are fully baked," she said.

Reshuffling Business Models

Business models are another major question mark for NDC, and one that concerns every player across the value chain. Most will say that NDC as a technical standard should be considered outside of financial models, but in reality, NDC is likely to precipitate many changes. It already has; Lufthansa initiated a GDS booking surcharge in 2015, followed relatively quickly by Air France-KLM and IAG. And it's not just with airlines. Amex GBT implemented in 2016 a $10 surcharge on bookings initiated outside GDS channels, so distribution-based financial scuffles have begun. American Airlines has approached the idea with a spoonful of sugar, incenting agencies with a $2 payback on every booking executed through their NDC pipes.

With retailing content becoming available through TMCs, will airlines consider commission payments aligned with upselling? Will that fly in the face of travel managers' directives to keep costs low?

And what will happen to the cost of distributing through the GDS for airlines? Travelport's Wilson commented on the complexity of normalizing the variations inherent in the NDC standard. At what cost? Will airlines opt to keep content out of the GDS channel, reducing agency bookings and, consequently, the incentives GDSs pay to TMCs?

Sabre VP of NDC Kathy Morgan sees broad potential for NDC to redistribute value across the chain and said changes in financial models would follow suit: "What value is being created? Who is the value being created for? Who is the value being created by? And how do you distribute that value in equitable ways? You have to start thinking beyond ‘all bookings being equal' into a world [where we] align the value across the value chain and figure out what the commercial model needs to look like."

I am willing to pay slightly more and will negotiate with willing partners for a better product or experience on the aircraft," she said. "I don't want to pay anything more for getting the technology in place to buy that."

Former IBM travel buyer Shari Quackenbush Meisner

Will the corporate end up footing the bill for NDC? ARC president & CEO Mike Premo, at an Association of Corporate Travel Executives conference in May, predicted they would. "If I were a corporate travel manager, I would be planning that, by 2020, my transaction costs by my agency are going to go up $5, $10 or $15. … The TMC model is going to change because the GDS model is going to change, and you're naive if you think that's not going to happen."

Quackenbush Meisner said TMCs and GDSs need to "own the costs" as part of the development cost of getting the connections in place. "I am willing to pay slightly more and will negotiate with willing partners for a better product or experience on the aircraft," she said. "I don't want to pay anything more for getting the technology in place to buy that."

Some airlines are on the same page. "If you go to a hotel, there's no cost for rich content," American Airlines director of distribution strategy Neil Geurin said at GBTA, "so we're not going to charge you to have access to more content. That's not to say there won't be parties who want to charge."

WTMC VP of global travel management Jennifer Steinke sees it differently. She agrees that TMC models will change but said direct connect TMCs like WTMC will bring a new dynamic to the table. "Buyers are going to win. There will be more opportunity than ever before to gain better discounts with carriers by helping them reduce their distribution costs."

Airline Contracting in an NDC World

Getting a better handle on ancillary spend has long challenged travel buyers. U.S. legacy carriers—including American Airlines, which is scheduled to put a tool into beta in November—have introduced reporting tools to improve that capability, but many buyers still fall short in tracking them.

About half the buyers in an Association of Corporate Travel Executives survey of 218 corporate travel buyers in May and June said travelers are buying out-of-policy ancillaries directly from airline websites at least some of the time. About half said they are not monitoring travelers' spending on ancillary items.

New Distribution Capability-based tools could supply more opportunity for buyers to introduce those ancillary products at the point of sale. For example, when travelers are allowed by policy to use in-flight Wi-Fi, they often buy it onboard and then file it as a separate item in their expense reports, American Airlines director of distribution strategy Neil Geurin said. With NDC, buyers could bundle it into the available fares.

Similarly, if a traveler is allowed to access preferred seats, current setups require them to make a booking through a corporate tool then go elsewhere to select that seat. NDC would fix that. "We've been putting Band-Aids on a 40-year-old system, but it's little things like that we're shooting to make more convenient," Geurin said. "Conveniences like that will matter in the long run."

Contracting & Managing Total Costs

"I actually believe that NDC will benefit corporate travelers and corporate travel managers more than it will benefit anybody else from a content standpoint," said Farelogix CEO Jim Davidson. "Buyers are already having more conversations with airlines around add-ons and service, but delivering that has been a problem."

NDC will allow buyers to "break away more than ever" from one-dimensional price negotiations, and the offer becomes more dynamic because it is constructed by the airline, he said. "Buyers can actually negotiate a number of ticket attributes. Those add-ons could even be dynamic in nature, based on availability. [For example], a free bag they can get pretty much every time, but extra legroom-seats are capacity controlled and the airline may not have it. What I've negotiated is: If the airline has X number of extra legroom-seats or business class seats available by the time the traveler makes that commitment to buy, then they will get that seat.

WTMC VP of global travel management Jennifer Steinke believes these dynamics will change not only the way travel managers contract with airlines but also how they think about policy. Buyers will be able to "put forth in front of travelers a logical buying decision," she said. Rather than rely on lowest-logical airfare policies, travelers could see that they have status that enables a free bag and a preferred seat on one carrier, making it a better choice than one that has a base fare that is $25 cheaper. With that environment, buyers could "offer branded fares, leverage spend with carriers and drive their costs down," she said.

NDC-fueled personalization opportunities also could boost traveler compliance, said Shari Quackenbush Meisner, who until recently was global agency and online lead for IBM. "The airline [should] recognize that the last time I flew that airline, there was a disruption … and either make an offer as I'm booking or offer more personal service as I'm boarding," she said. "Or if it's an airline I don't regularly fly and they see [in my traveler profile] who I work for, they'd have knowledge that I'm a frequent traveler and might [make an offer] to persuade me to try the airline."

Beyond the ability to create bundles, NDC is poised to deliver rich content for corporate booking tools to display at the point of sale, boosting the user experience and thus compliance. Many booking tools currently offer few details beyond price and flight duration.

Of course, airlines also need to understand that not all buyers will be interested in pushing ancillaries to travelers and many remain skeptical of NDC. Only a slim majority, 53 percent, in the ACTE survey expected NDC to be a net positive. More than half were concerned that offers in an NDC world would be less transparent than fares paid today.

"Our goal is to give buyers as much control as they want," Geurin said. "If bundles make sense for your corporation or just for the C-suite within your corporation, we want to help enable NDC content for you that meets those needs. We've talked to some companies that do not want that control, and that's fine, too."